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Governor of the Central Bank of Barbados, Cleviston Haynes.

Difficult year ahead

Due to the COVID-19 crisis, the Barbados Economy, which was expected to build on the gains of the 2019 economic growth, saw a contraction of three per cent of real economic activity during the first quarter of the year.

Governor of the Central Bank of Barbados, Cleviston Haynes yesterday gave a synopsis of the performance of the Barbados economy over the last three months and also gave the outlook for the rest of the year. Preliminary forecasts for the rest of the year had suggested negative growth of approximately eight per cent, but that was based on a quick recovery of the tourism sector. The true extent of the current situation faced by Barbados is a global health crisis, which has increased the likelihood of a double digit decline in economic activity for 2020.

Haynes stated that the outlook for the domestic economy threatened to be severe. He highlighted the cancellation of global business and personal travel along with hotels and restaurants being closed, which resulted in the loss of jobs and earnings. Also affected were areas such as tourism-related transportation and leisure sectors. The unemployment claims have also skyrocketed with the restriction on business activity, but Haynes believes that investment projects coming on-stream once the economy reopened would help to cushion the effects of a broader downturn this year and strengthen the growth prospects of 2021.

The governor went on to explain that the reduction of economic activity would depress government revenue in FY 2020/21 which would result in more government spending. That spending would be shifted from the previously targeted six per cent primary balance, to hold back the effects of the crisis through increased health-related expenditures and measures put in place such as income supports, compensatory transfers for state-owned enterprises impacted by lower revenues and high capital spending.

Committed to debt-GDP ratio
Despite this deviation from the plan to reduce debt in the short term, the current administration is still committed to achieving the 60% debt-GDP ratio by 2033. The government is in talks with the International Monetary Fund (IMF) to modify current year programme targets and to augment resources under the Extended Fund Facility. This facility would be used as budgetary support to help reduce the financial gap created by the smaller primary balance in FY 2020/21.

One of the silver linings in the governor’s address was that the international reserves of 19.4 weeks of reserve cover, raised over the last 18 months was more than enough to meet the obligations of the island to external debt. Haynes explained that the commitment of the government had been to focus on addressing the healthcare crisis and create a more stable situation. He also stated that the economic focus was also on the direct and indirect financial support of individuals and corporates and to safeguard financial institutions through regulatory policies. (AS)

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